TD Bank forced to repay over $16 million in fraudulent funds wrongfully retained
Between two parties separately defrauded by the same individual, who should be made whole? In 1442422 Ontario Ltd. et al v. The Toronto-Dominion Bank, 2026 ONSC 3856 the Court held that TD Bank, despite not being found negligent, must repay more than $16 million for its receipt of funds that the bank was unaware were fraudulently obtained but were paid in circumstances that should have led the bank to make further inquiries about their source.
Heimbecker’s unauthorized overdraft with TD
Mr. Heimbecker was a long-standing TD Bank client with two accounts at the bank: one personal and one for his mortgage brokerage Nestig. On September 19, 2022, TD Bank discovered a significant overdraft across the Heimbecker Accounts because of two cheques returning insufficient funds totaling over $21 million. Heimbecker advised the bank he had arranged to repay the unauthorized overdrafts.
TD Bank concluded that Heimbecker had misrepresented his ability to come up with the funds, when the funds would arrive, and their source. On October 3, 2022, TD Bank launched an action against Heimbecker and Nestig alleging the overdraft was the result of a cheque kiting scheme Heimbecker had perpetrated.
On October 14, 2022, TD Bank acquired an interim Mareva injunction freezing the Heimbecker and Nestig accounts. Just three days later, Heimbecker repaid TD. Despite knowing of multiple red flags in Heimbecker’s conduct and knowing of the need for enhanced due diligence, TD applied the funds in repayment of the unauthorized overdraft without having received the requested information. TD then terminated its now moot action.
The Plaintiffs’ Investment with Nestig
The plaintiffs in this case were two personal investment companies owned by Mr. Magarelli and Mr. Fielding. Fielding met Heimbecker in 2018 at a horse auction. They became partners in the horse racing industry and developed a friendship. Fielding learned that Heimbecker had a successful mortgage business.
In early October 2022, Heimbecker approached Fielding about investing in a mortgage project. Fielding introduced Heimbecker to the other plaintiff, Magarelli, as another potential investor. Fielding and Magarelli collectively then sent a total of $17.8 million to Heimbecker and his mortgage brokerage Nestig through their corporations, the plaintiffs. Unbeknownst to Fielding and Magarelli, these funds were not used by Heimbecker for investments but instead used to pay his unauthorized overdraft debt to TD.
A month later, Fielding and Magarelli learned of the TD action against Heimbecker through an acquaintance in the horse racing community. They then confronted Heimbecker, who admitted to the fraud.
The Action
Fielding and Magarelli, through their companies, then brought this action against TD for their investments based on negligence, knowing receipt, conversion, unjust enrichment, and money had and received. The Court found TD liable to pay the plaintiffs over $16 million plus prejudgment interest.
The Court declined to find TD Bank negligent. TD did not have actual knowledge of the fraud committed at Fielding and Magarelli’s expense. Although the bank was aware of the risk of fraud given the red flags exhibited by Heimbecker’s conduct, the Judge was not persuaded that TD Bank knew of a clear probability of fraud sufficient to satisfy a finding of actual knowledge through recklessness or willful blindness.
The Court found TD Bank liable to the plaintiffs under knowing receipt. The plaintiffs’ investment money was indisputably trust property and on the facts TD Bank had constructive knowledge of the fraud perpetuated against Fielding and Magarelli.
At law, constructive knowledge is satisfied when a party with knowledge of facts that would put a reasonable person on inquiry fails to inquire as to the possible misapplication of trust property. The evidence available to TD Bank met the standard of requiring enhanced diligence. Once this standard was met, TD was not entitled to allow the transaction without increased scrutiny.
The Court found TD Bank liable to the plaintiffs for conversion. The tort of conversion involves wrongful interference with the goods of another. In finding TD liable, the Court extended the tort to include funds on deposit in a bank account.
TD Bank was also found to have been unjustly enriched.
- TD had been enriched by the funds;
- The plaintiffs had been correspondingly deprived; and
- There was no juristic reason for the enrichment.
TD argued Heimbecker’s debt to the Bank was a juristic reason for their enrichment. The Court disagreed with this analysis. It did not matter whether TD had a juristic reason to recover the debt from Heimbecker, but whether TD had juristic reason to keep the funds of Fielding and Magarelli. The Court found no such juristic reason.
The Court further rejected TD’s argument that Magarelli and Fielding should be held 50% liable for their failure to detect any issue with Heimbecker. At the time the funds were advanced, there was no publicly available evidence that the Mareva injunction was in place. The Court rejected the bank’s claim that the harm was reasonably foreseeable by Magarelli and Fielding, despite their admissions that they could have searched and found out that Heimbecker’s mortgage broker license had been suspended, did not do so, and would not have advanced the funds had they done so. This precludes a possible defence for a bank in a similar situation: for an investor to be found contributorily at fault, their loss must be foreseeable. Although TD was not negligent, they had reason to suspect Heimbecker’s conduct. The Court accepted that in contrast, the plaintiffs knew Heimbecker only as a highly regarded businessman and community member.
The Impact of the Decision
1442422 Ontario Ltd. et al v. The Toronto-Dominion Bank, 2026 ONSC 3856 demonstrates the importance of customer due diligence in the banking industry. TD Bank was aware of Heimbecker’s suspicious conduct, including his past fraud. The Court accepted that this knowledge would have put a reasonable Canadian bank on inquiry.
Despite knowing of the need for enhanced diligence, the bank failed to require the relevant information before applying the funds in repayment of the unauthorized overdraft. While TD was not negligent because it lacked actual knowledge of the fraud, this lack of diligence was sufficient to find constructive knowledge, and thereby knowing receipt.
This case can act as a lesson for all banks. When dealing with a suspicious customer with a known history of fraud or dishonest conduct, the onus is on the bank to ensure receipt of relevant information before accepting or disbursing any funds. A failure to do so could result in significant liability.
